The Federal Trade Commission (FTC) plays a vitally important role in protecting consumers and the competitive process. However, this role is limited to the enforcement of existing laws as enacted by Congress and focused on cases where there is demonstrable and legitimate harm. Under current leadership, the FTC has brought complaints against companies using untested legal theory and pursued rulemaking authority under an expansive reading of Section 5. In response to the Innovation, Data and Commerce Subcommittee Hearing, the American Consumer Institute has released a series addressing the changes at the FTC and how they undermine consumer interests in the competitive process.
Procedural changes to the rulemaking process at the Federal Trade Commission (FTC) run afoul of reforms designed to create unbiased and transparent procedures to increase public trust. These changes are indicative of other actions by the FTC that suggest the agency is attempting to extend its authority. Rulemaking is an important part of protecting consumers, but it should be restrained and based on known impacts.
The FTC’s mission is to protect “the public from deceptive or unfair business practices and from unfair methods of competition.” The agency does this by bringing complaints under federal antitrust law. The three primary relevant pieces of legislation are the Sherman Act, the Clayton Act and the Federal Trade Commission Act. Together, these laws prohibit unfair or deceptive practices, restraint of trade and attempts to maintain monopolies through means other than competition. Section 18 of the FTC Act allows the agency to create rules “to deal with common unfair or deceptive practices and unfair methods of competition.”
The FTC’s process for promulgating these rules has evolved over the years. The most recent changes occurred in 2021, most notably allowing the Chair to oversee or appoint someone to oversee the process which will replace the role formerly given to the Chief Administrative Law Judge.
As noted by former commissioners Christine Wilson and Noah Phillips, these changes will undo efforts designed to create a fair and independent agency that the public trusted. The FTC claims the procedural changes will streamline the process, while Wilson claims they will reduce rigor and place additional authority for the proceedings with the Chair.
Ultimately, the changes the agency made regarding Section 18 of the FTC Act are not nearly as problematic as what the agency can do and has done under these new rules.
In 2022, the FTC sought comments on rules for data privacy and security practices. To date, nothing has been published, but that hasn’t quelled the discussion over whether it is the FTC’s role to create laws rather than create rules to enforce existing laws. Currently, the FTC has an established role in enforcing laws, as its actions in the data privacy space demonstrate.
Last December, the FTC fined the video game maker Epic Games a total of $520 million over violations of current laws, including violations involving children’s data privacy. The FTC has also pursued actions and proposed fines against healthcare services such as GoodRx and BetterHelp for revealing consumer information. All three of these complaints were achieved under existing laws, without usurping Congress’s role.
As the federal government currently does not have a general data privacy law — current laws focus on specific industries or age groups — justifying a potential FTC rulemaking on data privacy would require an extensive read of the FTC’s rulemaking authority. It is clear Chair Lina Khan believes the FTC has such an expansive authority, as delineated in her co-authored paper The Case for “Unfair Methods of Competition” Rulemaking. This expansive rulemaking interpretation lacks the same oversight as congressionally enacted laws.
FTC rulemaking proposals are not limited to areas where Congress has yet to act, as in the case of data privacy, but include areas where the impacts are debated and vary by circumstance. Early this year, the agency proposed a rule that would establish a blanket ban on noncompete agreements. These agreements are contracts where an employee generally agrees to not work for a competitor after leaving the company for a set period of time. This rule would have far-reaching impacts and isn’t based on established economics. The impact of noncompete agreements can be positive in terms of increased training opportunities and higher wages. At the same time, other studies suggest it harms worker mobility. This variance means that noncompete agreements should be evaluated on a case-by-case basis and are not universally harmful.
Changes to the internal process of Section 18 will only make it easier to pass sweeping rules based on contested economic reasoning and wade into the territory of Congress. These changes are indicative of the belief that the FTC should be a rulemaking authority that isn’t constrained by established facts.
Tirzah Duren is the director of tech policy at the American Consumer Institute, a nonprofit educational and research organization. You can follow her work on Twitter @ConsumerPal.